Office Sector Outlook 2010 F. Antonio Puente, CCIM Senior Vice President November 19th, 2009.
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Transcript of Office Sector Outlook 2010 F. Antonio Puente, CCIM Senior Vice President November 19th, 2009.
““An optimist stays up until midnight to see the New Year in. A pessimist An optimist stays up until midnight to see the New Year in. A pessimist stays up to make sure the old year leaves.”stays up to make sure the old year leaves.”
-Bill Vaughan, real estate investor-Bill Vaughan, real estate investor
"The US commercial property market is far from recovery and needs job "The US commercial property market is far from recovery and needs job growth, sustained low interest rates and further government support" in growth, sustained low interest rates and further government support" in addition " We think we are early in the game as far as real estate markets addition " We think we are early in the game as far as real estate markets reaching stability.” reaching stability.”
- GE Capital Real Estate CEO, Ronal Pressman- GE Capital Real Estate CEO, Ronal Pressman
State of the MarketMarket Indicator 2010 Comments
Supply Several new “spec” buildings are being delivered to the market with very little, if any, pre leasing success.
Vacancy Vacancy rates began an upward trend in late 2008 and will continue into 2010/11due to the sluggish economy and cautious tenants.
Demand/Absorption
Due to continued rising unemployment, defaulting tenants, demand will continue to weaken and negative absorption will continue in most markets.
Rental Rates Rental rates will continue to stay flat or slide along with higher tenant improvement allowances, more free rent, more perks.
Unemployment The unemployment is a significant indicator of the occupancy in the office sector. The stabilization and then reducing of unemployment is a direct correlation to office occupancy stats.
Office Supply
In 2008/09 the market delivered over 1 million square feet of new buildings in the Miami area in several submarkets. Most of these building have achieved little or no leasing results to date.
Buildings that were built as "for sale condo buildings" are now offering spaces on a "for lease" basis, also. Specifically in the Coral Gables/Ponce corridor and Coconut Grove.
In 2010 the market will again deliver over 1.1 million square feet mainly in the Downtown/Brickell submarket. These buildings will be delivered to the market with over 70% still available. In fact one new 600,000 rsf office building on Brickell has slowed the construction process to a crawl due to lack of financing and leasing activity. This building, Brickell Financial, will probably wait out for the strengthening of the office market which could potentially take several years of positive absortion.
Most proposed buildings that did not already commence construction have been “put on hold”, therefore, we now have a finite number of the total inventory of office space.
Significant New Construction
Brickell / Downtown Size Delivery1450 Brickell Ave. 570,000 SF 2010680 Brickell Ave. 596,000 SF TBDMet 2 Tower, 301 SE 2nd Ave. 705,000 SF 2010 (late)
Coral GablesMiami Green Building 100,000 SF completedBacardi Headquarters 230,000 SF completed396 Alhambra 150,000 SF 2011Ponce de Leon Towers 203,000 SF no started
Doral/Airport AreaDoral Center 150,000 SF 20101000 Waterford 257,000 SF completedPark Square at Doral 231,000 SF completed
Kendall / Dadeland Area
BCI / TownCenter One 205,000 SF completed
North Miami-Dade/Miami LakesParkside Corporate Center IV 40,000 SF completedCity Place, 2950 Waterway Blvd. 50,000 SF completed
Coral Gables/ Coconut
Grove16%
Kendall/ Dadeland
12%
Airport West23%
Downtown/ Brickell
23%
Other SubMarkets
26%
Market Statistics (% of Office Market)
Source: CoStar Property
Coral Gables/ Coconut
Grove16%
Kendall/ Dadeland
12%
Airport West23%
Downtown/ Brickell
23%
Other SubMarkets
26%
Under Construction Size Delivery1450 Brickell Ave. 570,000 2010680 Brickell Ave. 596,000 2011 ??Met 2 Tower, 301 SE 2nd Ave. 705,000 2010
Recent TransactionBilzin Sunmerg Baena 80,000 SFGreenberg Traurig 125,000 SFBankUnit 11,500 SF
Boston Consulting Group 5,200 SFWilliam J. Brown Law Firm 4,800 SFCabrera Capital Markets, 4,700 SF SFET Publishing (Televisa) 4,700 SFTHM Group 3,900 SF
GSA - Omni 30,000 SF
Average Rental RatesNew Construction$40.00 - $50.00Class A $38.00 - $46.00Class B $32.00 - $38.00Class C $22.00 - $28.00
Average VacanciesClass A 9..5 %Class B/C 15.5%Overall 16.5%
Market Statistics Downtown / Brickell
Greatest Exposure to Potential
Overdevelopment
Source: CoStar Property
Market Statistics Airport West
Source: CoStar Property
Coral Gables/ Coconut
Grove16%
Kendall/ Dadeland
12%
Airport West23%
Downtown/ Brickell
23%
Other SubMarkets
26%
Under Construction Size Delivery
Flagler Station 100,000 SF completedCrossroads 110,000 SF completedDowntown Doral Center 150,000 SF 20101000 Waterford 257,000 SF completedPark Square at Doral 231,000 SF completed
Recent TransactionsCaterpillar 26,000 rsfParbell of Florida 25,0000 rsfJohnson & Johnson 19,600 rsfPhelps Dodge 17,000 rsf
Average Rental RatesNew Construction$30.00 - 36.00 Class A $29.00 Class B $23.00Class C $21.00
Average VacanciesClass A 14.9 %Class B 18.4%Class C 13.6%Overall 16.1%
City of Doral has been recently named as one of
The 10 best places to retire in the US citing taxes
And surrounding beauty.
-US News and World Report
Coral Gables/ Coconut
Grove16%
Kendall/ Dadeland
12%
Airport West23%
Downtown/ Brickell
23%
Other SubMarkets
26%
Under Construction Size DeliveryMiami Green Building 100,000 SF completedBacardi Headquarters 230,000 SF completedPonce de Leon Towers 203,000 SF 2012
Recent TransactionsAECOM 23,000 SFBSS&S 20,000 SFMedical Business Services 17,000 SFDeMahy Labrador – GFB 14,000 SFVision Strategic Services 15,000 SF
Average Rental RatesNew Construction $45.00 - $50,00Class A $39.50Class B $33.00Class C $20.00
Average VacanciesClass A 15.5 %Class B/C 7.4%Overall 12 %
Market Statistics Coral Gables / Coconut Grove
“The Model Market”
Trolley, downtown wireless
Connectivity, historical preservation
keep Coral Gables at the top of the list
for office tenants looking to stay closer to
home
Source: CoStar Property
Coral Gables/ Coconut
Grove16%
Kendall/ Dadeland
12%
Airport West23%
Downtown/ Brickell
23%
Other SubMarkets
26%
Market Statistics Kendall / Dadeland
Source: CoStar Property
The Dadeland / Kendall market continues to be a
market of choice for business owners and executives
who live in close proximity. The addition of residential
condos and new retail establishments have added
to the allure.
Under Construction Size DeliveryDadeland Centre II 113,000 SF completedTown Center One 210,000 SF completed
Recent Transactions:Preferred Trust 5,000 SFFold Financial Management 2,300 SFKeith Chasen, PA 2,200 SF
Average Rental RatesNew Construction$40.00-$45.00Class A $34.00Class B $26.00Class C $22.00
Average VacanciesClass A 10.5 %Class B/C 10 %Overall 13.5 %
Conclusions and Forecast for 2010
• Slumping Office Market - Tenants have the upper edge in negotiations, but this round of office development is now coming to an end. Very few new Office projects planned.
• Active Leasing Market -Tenants and Brokers are taking advantage of the soft market and looking for the best opportunities. Tenants are playing musical chairs.
• Effective Rents - The Gross Rents will remain depressed for the next two - three years. Rent abatement, tenant perks and higher Tenant Improvements will prevail.
• Survival of the Fittest –Mature buildings that are financially stable and with quality ownership will perform better than most due to markets concerns about building performance and operations from unstable assets.
Conclusions and Forecast for 2008
• Office Investment Activity - has been very slow to date, but should increase in the form of “bank note sales” and “distressed asset transfers”. Cash buyers continue to dominate the marketplace and are hoping for lower prices. High initial cap rates and strong IRR of 25-35 % will continue to be the norm.
• City’s mandate - Miami needs to continue to invest in roads, mass transportation, the ports, and maintain its place as the gateway to the Americas in order to attract and retain new business.
• Green is the Color of Money - Both existing buildings and new construction are fully amerced in environmentally-friendly, energy conservative initiatives and construction standards. LEED certified professionals and buildings will be sought after.
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